The Solution to the Fragmentation Problem of Ethereum

With the rapid development of Layer 2 networks and various decentralized finance applications, the Ethereum ecosystem is facing an increasingly serious liquidity fragmentation problem. This issue mainly manifests as asset liquidity being dispersed across multiple independent Layer 1 and Layer 2 networks, making it difficult to form a unified and efficient liquidity pool. Different Layer 2 networks are competing for a total locked value of (TVL), resulting in assets and transactions being scattered across numerous decentralized platforms and protocols. However, there is a lack of effective connections and interoperability between these platforms, and the liquidity on each network can only operate within its own closed ecosystem, further exacerbating the overall fragmentation cost problem of Ethereum.

It is expected that over 100 new Ethereum-compatible chains will launch in 2024, similar to entering a shopping mall filled with a variety of products but needing to use different currencies for settlement. To address this challenge, the Ethereum Foundation announced the launch of the Open Intents Framework on February 20, aimed at providing Ethereum with a seamless trading experience similar to a "single chain." The framework gained support from over 50 protocols in just a few days.

According to the official explanation, the Open Intents Framework consists of three core components:

1. Open-source Solver: This framework provides an open-source solver written in TypeScript that can monitor on-chain events and handle intents. This solver has protocol independence and supports features like indexing, transaction submission, and rebalancing, allowing developers to customize and adjust it according to their needs.

2. Composable Smart Contracts: The framework provides a series of pre-built smart contracts based on the ERC-7683 standard. These contracts define the logic for interpreting, executing, and settling intents, with built-in support for limit order trading and Hyperlane ISM settlement.

3. User Interface Template: To enhance accessibility for end users, the framework also offers a pre-built, customizable user interface template.

ERC-7683: The Core Standard for Cross-Chain Intent Coordination

ERC-7683 is a universal standard for cross-chain intentions on Ethereum, co-developed by several well-known protocols. This standard aims to provide a unified, standardized framework for expressing and executing cross-chain operations, particularly among multiple Layer 2 solutions and sidechains.

The core content and components of ERC-7683 include:

1. Cross-chain order structure: Defines a unified format for cross-chain orders, ensuring consistency between different blockchains and platforms.

2. ISettlementContract interface: standardizes the handling of the settlement process, allowing cross-chain transactions to be flexibly executed across different platforms.

3. Fulfil mechanism: Allows participants to compete in a shared network to complete cross-chain intentions, improving transaction efficiency.

4. Filling Deadline: Mark the expiration time of the cross-chain intent to avoid long periods of invalid transaction waiting.

5. Order Data Type: Use EIP-712 type hash to specify the structure and format of the intent data.

6. Order Data: Contains the core parameters of cross-chain transactions, ensuring that the transaction participants can accurately understand and execute cross-chain operations.

The biggest advantage of ERC-7683 lies in achieving seamless cross-chain interaction. By standardizing the expression of cross-chain intentions, users can perform operations across different blockchains without complex setups. This greatly lowers the technical barrier for cross-chain operations, allowing users to conduct cross-chain transactions more conveniently.

In addition, ERC-7683 enhances governance capabilities. It simplifies the governance processes between different blockchains, especially for decentralized autonomous organizations (DAOs), making it easier to manage proposals and decisions across multiple chains, thereby improving the flexibility and transparency of governance.

Intent and DeFAI: Where is the end of abstraction?

Intent and DeFAI are essentially both derivatives of decentralized finance (DeFi), but there are only two core issues that DeFi really needs to solve: scalability and liquidity. Intent seems more practical by integrating liquidity, while DeFAI has achieved automated trading with the help of artificial intelligence technology, making it more attractive.

The core goal of Intent is to simplify user interaction through the "intent-driven transaction" mechanism. Users can set transaction intents and strategies, and the system will automatically execute them without manual intervention at every step. This not only enhances the usability of DeFi but also optimizes strategy execution and improves trading efficiency. In addition, Intent may also address liquidity bottlenecks in DeFi through cross-chain technology, breaking down barriers between different chains and optimizing liquidity pools, thereby increasing the market depth and trading efficiency of decentralized exchanges.

DeFAI, as a decentralized finance protocol based on artificial intelligence, focuses on solving compliance and risk control issues in DeFi. It utilizes AI technology to analyze and predict market trends, helping the protocol identify potential risks while reducing operational risks and ensuring the stability of the protocol. AI can handle large amounts of market data, providing users with more accurate decision support, optimizing market operations and risk management.

From account abstraction, chain abstraction to intent and DeFAI, abstraction seems endless, with technology and market demands continuously driving the creation of more layers of abstraction. However, we need to moderate abstraction. The issue of liquidity fragmentation is essentially more like an "integration problem of the ecosystem"; it does not solely rely on the increase of abstraction layers but rather on how to solve it by optimizing existing protocols.

Why can a certain well-known DEX truly promote the development of ERC-7683?

Although "intent" is a grand narrative concept, the core support of ERC-7683 mainly relies on some leading decentralized exchanges to drive its realization. This is because both Intent and DeFAI are fundamentally about better serving DeFi, and the key element for maintaining the healthy development of DeFi is market liquidity. This dependency needs to be built on two conditions: "efficient liquidity supply" and "deeply integrated liquidity."

1. The liquidity advantages of advanced version DEX

The introduction of the new version of the DEX makes liquidity pool management more flexible and efficient, especially for concentrated liquidity provision across different price ranges. This mechanism optimizes capital efficiency, making cross-chain trading smoother. The new version replaces the previous practice of deploying separate smart contracts for each new pool with a single PoolManager contract, reducing deployment costs by 99% while also lowering exchange costs. In addition, the new feature allows for the development of customized AMM pools, enabling the ERC-7683 protocol to adjust according to different market demands, better matching various trading pairs and asset liquidity.

2. The potential of new features

Some new features of certain DEXs are expected to further enhance cross-chain interoperability, possibly incorporating new cross-chain bridging mechanisms or deep integration with ERC-7683, providing more efficient channels for cross-chain asset exchange. If these new features can provide cross-chain liquidity solutions, they will become important platforms for executing cross-chain intentions with ERC-7683.

3. The implementation of cross-chain protocols relies on

Due to the reliance of ERC-7683 on standardized cross-chain trading structures and settlement mechanisms, some leading decentralized exchanges play a pivotal role in this area. The protocol is likely to depend on the liquidity pools, automated market making, and cross-chain trading capabilities provided by these platforms. In particular, some new cross-chain solutions can not only support the efficient execution of ERC-7683 but, most importantly, ensure the stability and security of its cross-chain and multi-asset trading.

The actual meaning of intention

Setting aside the abstract definition of "intention", it can actually be understood as a clear trading goal or driving force. The concept of intention can be traced back to an article published on June 1, 2023, regarding intention architecture and its risks, but it has remained in the conceptual stage. The issues regarding fragmented liquidity and the solving path methods of solvers have not yet been resolved; however, the launch of ERC-7683 seems to provide a better solution to the fragmented liquidity problem.

The ultimate goal is to inject new vitality into decentralized trading, hoping to trigger a new wave of DeFi boom. Therefore, the intention of ERC-7683 is not merely to continue the Layer 2 scaling but to attract more users and liquidity by achieving more efficient transactions, creating richer functionalities, and stronger cross-chain interoperability, and even introducing new incentive mechanisms or trading models.

If the new version of the DEX introduces some new smart contract logic or trading models at the protocol level, it can further enhance cross-chain liquidity, reduce trading costs, and add more trading pairs and liquidity pools based on the existing AMM model through ERC-7683. This will make decentralized trading no longer just an AMM with dispersed liquidity, and these improvements will also become an important part of the "intention".